Economic Engine for Foreign Policy

By DAVID E. SANGER

Published: December 28, 2000

WASHINGTON, Dec. 21—
There arrived a moment in his presidency when Bill Clinton's view of America's role in the world grew up in a hurry.

It came on a frigid January day in 1995. Robert E. Rubin, who had just been sworn in as treasury secretary, followed Mr. Clinton into the Oval Office to deliver some bleak news.

''Bob came in and essentially told us that Mexico had 48 hours to live,'' recalled Samuel R. Berger, Mr. Clinton's national security adviser.

Mexico was facing economic implosion, the result of a dive in the value of the peso after years of financial mismanagement and corruption. Foreign investors were fleeing, and the State Department had warned of unrest and a flood of illegal immigrants to the United States.

Someone asked how much a bailout would cost.

''We said $25 billion,'' recalled Lawrence H. Summers, then a senior treasury official and later Mr. Rubin's successor. ''One of the political guys in the room said, 'You mean $25 million, don't you?' No, we repeated, it was billion with a 'B.' And then there was a chorus of, 'This could cost you the election.' ''

It did not. Mr. Clinton sidestepped an angry Congress to raise the money. The bailout worked, and Mexico repaid the loans, plus a billion dollars in interest. Rightly or wrongly, Mr. Clinton and his aides contend, the reforms they demanded from Mexico in exchange for the money helped democracy flourish.

In retrospect, Mexico was the test for what became the signature change in American foreign policy.

To deal with a world no longer dominated by nuclear rivalries, Mr. Clinton would place a brand of economic diplomacy at the core of his foreign policy. The man who came to office criticizing President George Bush for putting commerce ahead of human rights ended up arguing, quite passionately, that the spread of American-style capitalism would eventually help spread American-style democracy. Particularly after his re-election in 1996, Mr. Clinton supported the use of economic enticements to bring about political change, including lifting cold war embargoes, signing more than 300 trade agreements and even teaching countries the basics of contract law.

Whether he was in an Irish village, a Vietnamese industrial park or at Beijing University, the message was the same: Prosperity would create choices, choices would lead to a demand for information, and that information, provided at the speed of the Internet, would bring political change. In time, perhaps, dictatorships and one-party rule would fall.

Mr. Clinton will leave office with the experiment under way but the thesis unproven. Some of the fledgling successes he has nudged along, like Poland and South Korea, were well along the path before he came to office. Others that began the trip toward democracy have since floundered. A case in point is Indonesia, where an economic collapse ousted a dictator but then plunged the country deeper and deeper into chaos.

At moments it seemed that Mr. Clinton's approach would backfire at home. For a few scary months in 1998, the financial crises in Asia and Russia seemed to put the world at risk of an economic meltdown. The danger faded, but even today, there is a sense of precariousness in the world economy, with the American economy slowing while Japan remains in a recession.

His boldest experiments at using economic incentives to achieve democratic reforms have been in China and Russia. Critics have called them failures, but the administration has argued that the verdict is still out.

In China, the market economy has flourished, and state-owned enterprises are changing or have closed. For his part, Mr. Clinton wants to be remembered as the man who pushed China toward capitalism, just as President Richard M. Nixon is remembered for opening links to China and President Jimmy Carter for normalizing relations. In 1999, Mr. Clinton first rejected, and later signed, an accord in which China agreed to open its markets to foreign imports in return for entry into the World Trade Organization.

Mr. Clinton argued that the accord would spark political openness, but in Beijing, leaders believe they can enjoy the benefits of market reform without loosening their political grip, and by some accounts, they have imprisoned more dissenters than during the Tiananmen crackdown.

In Russia, where Mr. Clinton had the most at stake and may have been the most naive, democracy came before Western-style capitalism, and the capitalism that took root -- after the Americans pressed for speedy privatization -- was of the crony kind.

Now Russia's inability to compete appeared to be causing a return to the days of central control and sporadic challenges to American power.

Mr. Clinton arrived in Washington before globalization had become a buzzword. And while he had talked about using economic levers to change the behavior of nations in the post-cold-war order -- most notably in a speech at Georgetown University in 1991 that became the template for his plan -- his initial strategy was far simpler, and more mercantile.

Job No. 1 was using diplomatic power to open markets for American goods, helping to create jobs and lift the United States out of a recession. But in his zeal for free trade, he was at odds with most of the Democratic Party.

Correction: December 29, 2000, Friday A picture caption and a front-page article yesterday about President Clinton's foreign policy misattributed the signing of a trade agreement with China. It was the United States trade representative, Charlene Barshefsky, not the president, who signed the agreement in 1999. (This year Mr. Clinton signed the legislation that granted permanent normal trading status to China.) The caption also misstated the timing of Mr. Clinton's visit to Beijing. It was in 1998, not after the agreement was signed.